executive options

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Tue Apr 4 14:38:18 PDT 2000

Doug, I am confused by all this talk about how present valuations are based on a rate of profit growth (15%) that means in so many years profits would eat up all of GDP , if it continues to grow at its current rate (3%). 1. Why and how are present valuations dependent on that kind of extended profit growth? Couldn't I buy at present values expecting no more than say a 7% profit growth rate as long as I think buying on the Nikkei poses great risk of destruction of my capital or bond purchases are subject to great risk of loss of par (?) value (I guess that means I would be anticipating higher interest rates in response to dollar fall from current account deficits)? Perhaps investors just aren't expecting much in the the possibilities of returns elsewhere and willing to accept a lower rate of return on stocks or are simply paying premium for what they take to be safety (and at any rate easy exit) from the highly liquid US stock market? Didn't Brad deLong mention that possibility? 2. perhaps there's great expectations of profit rate growth from overseas operations, and this is allowing profit growth expectations to race ahead of US GDP growth rate expectations.

Sorry if this post is terribly confused. I should read an investor manual one of these days.

Yours, Rakesh

More information about the lbo-talk mailing list